China's hospitals have been going through a series of near constant changes in the past few decades, with the number of available care facilities rising from 18,393 in 2004 to well over 25,860 in 2014. This growth in facilities has been attributed to a number of factors including increased demand for care due to a growing and aging population, as well as an opening of the market to private and foreign investors. While the road certainly hasn't been smooth, we are currently working on an article that will cover some of the latest issues as there have been some intriguing steps taken.

One of the most interesting factors that has brought hospitals and insurance companies together in a never-before-seen way in China has come about is the government's 13th Five-year Plan, which puts a focus on building a healthier China. In this article, we cover the basic tenets of the plan, how it has brought about a new style of hospital, and what this means for health insurance.

Looking at the 13th Five-year Plan

The 13th Five-year Plan serves to act as the government's economic and social roadmap for 2016-2020 and highlights what different government bodies will be doing to reach the goals of the plan. Approved in mid-March of 2016, the latest plan focuses on implementing a number of improvements, one of them being the overall health of the nation. Officially dubbed the "Healthy China" initiative, this plan will set out to reform the country's health insurance system while providing those in China with better, easier access to higher quality and more trustworthy medical services. To learn more about how the medical industry, including health insurance, will be changed, check out this article on Asia Outlook which provides a good overview.

As we noted above, one of the major steps being taken is improving access to medical care, which will be carried out primarily through the opening of more hospitals. Because the government now allows private investors, we are starting to see an increasing number of hospitals being opened as joint ventures, usually between private or international investors and local governments, and this will be encouraged within the latest Five-year Plan. Historically, many of these private investors have been private companies not necessarily linked to health care. Rather, they are investors looking for a sound market in which to invest. However, the newest hospital opened is slightly different.

Newest hospital in China the start of a new style of joint-venture?

On May 8 it was announced by authorities in China and news sources that a new hospital had been opened in Shandong province. Named the Sunshine Union Hospital, this hospital is unique in that it is the first hospital opened in China that has been funded by an insurance company. According to the Shanghai Daily, "The Sunshine Insurance Group invested 3 billion yuan (461 million U.S.dollars) to set up the hospital in cooperation with the city government."

From the details we have seen, the hospital has over 2,000 beds and is a Class A level hospital, which means it offers the a quality of care and service that is on par with the biggest hospitals in China's Tier 1 cities.

Aside from offering higher quality care and service, the authorities running the hospital have explained that "the hospital will experiment with introducing commercial medical insurance in hospital fee payment, allowing people better access to medical services." This is an interesting model of care that, if successful, could be replicated in hospitals around the country looking to improve accessibility to services.

Will insurers buying hospitals work in China?

This is a hard question to answer, especially when it comes to health insurance and hospitals in China and the fact that this has not been done in the country before. It has been done to varying degrees of success in other countries, however.

For example, In the early 1990s in the U.S., Humana, one of the largest insurers in the country, experimented with buying 76 hospitals. According to Becker's Hospital Review, this trial resulted in a spectacular failure, as "Bond raters said it alienated physicians, who would not refer patients to Humana hospitals if they objected to certain managed-care practices. Humana ended up dividing the hospital operations into a spinoff company called Galen Health Care in 1993."

This highlights a potential problem that needs to be addressed if insurers are to successfully run a hospital in China: They need to ensure that doctors will be willing to recommend the hospital over other locations. If quality remains high, then this should not be a problem.

Interestingly, the Becker's Hospital Review article also noted that in the U.S. this could work as there is a current increasing deficit combined with skyrocketing costs of care, both of which are also present in China. According to the article, "Insurance companies believe they can bring efficiencies to the table, and the integration of insurer and delivery system can bring a 20-30 percent reduction of the cost structure." If this happens in China - an insurer is able to bring about efficiencies and integrate better systems - then insurer-owned hospitals could very well prove to be one way to achieve the health care-related goals of the latest Five-year Plan.

That said, hospitals in the country have a long way to go in order to offer service and quality equal to that seen in other countries, including Hong Kong and Singapore, and to gain the trust of the people, especially private hospitals. Time will tell if this funding method is actually successful.

Will this impact health insurance?

For the time being, Pacific Prime China does not believe that insurer funded hospitals will have a large impact on health insurance premiums in China, after all, it is only one hospital. But, if more are opened using this funding methodology then we could see some interesting impacts on health insurance in the country. First, we could see an overall increase in quality of care, which means fewer overall claims. This in turn, should result in lower premium increases primarily due to the fact that insurers will be better able to predict costs as they essentially run the system and take on less risk.

One other impact could be a change in how provider networks work. If a provider operates hospitals, it is highly likely that they will push their members to use those hospitals over others. This means possibly fewer places where claims will be accepted. One of the ways to avoid the effects of this is to secure an international health insurance plan, which will usually have larger provider networks and more agreeable claim rules.

While it is highly likely that there will be no major impact on health insurance in the near future, the experts at Pacific Prime are interested to see how insurer funded or operated hospitals in China will operate.